Even for Ailing Newspapers, U.S. Says a Monopoly Is a Monopoly

  • DOJ sues to block Tribune's purchase of two California papers
  • Judge approves Digital First bid for Freedom Communications

Tribune Publishing Co. Chairman Michael Ferro has said he wants to save journalism, yet he couldn’t convince the U.S. Justice Department to look the other way on a newspaper merger in Southern California.

In a court hearing Monday, Tribune lost out to a rival bidder for two publications because of the government’s intervention. The Justice Department argued that Tribune, owner of the Los Angeles Times, would get too much control of the English-language newspaper market if it had been allowed to buy Freedom Communications Inc., the publisher of the Orange County Register and Riverside Press-Enterprise.

A federal bankruptcy judge approved a $53 million bid from Digital First Media Inc., according to a statement from the Justice Department. Last week, Tribune had beat out the publisher of the Los Angeles Daily News and Oakland Tribune with a $56 million bid.

While a newspaper monopoly may have once been a concern, today’s local papers are competing against Internet giants like Craigslist Inc. and Facebook Inc. for readers and advertisers. Print circulation has fallen 50 percent in the past decade, while total revenue has dropped 40 percent, according to an analysis of data from the Alliance for Audited Media and the Newspaper Association of America by industry analyst Alan Mutter.

“It’s the antitrust equivalent of calling the SWAT team on a 90-year-old lady for jaywalking,” William Markham, an antitrust attorney based in San Diego who said he usually opposes media mergers. “Why are they using the mighty arsenal of the Department of Justice to go after struggling newspapers that can barely remain in business and are vital pillars in our democracy?”

The deal’s flop major setback for the Tribune’s growth strategy. With Ferro’s $44.4 million cash infusion in February, Tribune has been on the hunt for acquisitions.

In a filing Friday, the publisher said a merger with Freedom would lead to $24 million in cost savings. And in the fourth quarter, circulation revenue would have been flat without the San Diego Union-Tribune, which Tribune acquired in May. The San Diego newspaper also helped stem declines in ad revenue from a year earlier, to 1.9 percent from 8.7 percent.

A spokesperson for Tribune said the government’s position doesn’t recognize the current state of the media landscape. “Internet-based aggregators take journalism content from leading news brands -- like the Orange County Register -- and profit at the expense of the content creators,” the spokesperson said in an e-mailed statement Monday.

Shares of Tribune fell less than 1 percent to $8.08 at 9:48 a.m. in New York. The stock has dropped 12 percent this year through Monday.

‘Diversity of Views’

A day after the Justice Department sued Tribune, U.S. District Judge Andre Birotte Jr. ordered a temporary block on the company’s purchase of Freedom, saying the combination would harm readers and advertisers by ending competition between the newspapers. Birotte also said it wasn’t correct to include tech companies such as Google Inc. and Apple Inc. as competitors since they don’t generate local content.

In a statement Monday, Assistant Attorney General Bill Baer said the antitrust division will continue to protect competition in the newspaper industry.

“Preventing the Los Angeles Times from combining with the Register and the Press-Enterprise will ensure that citizens and advertisers in Southern California continue to benefit from competition and from a diversity of views in their local news coverage,” Baer said.

Steven Waldman, a former media adviser to the chairman of the Federal Communications Commission, said the DOJ’s antitrust division was being too narrow in defining the market.

“The price pressure that newspapers are feeling on their ad rates is not coming from other newspapers; it’s coming from the Internet,” said Waldman. “In the modern era, you can be a monopoly newspaper and face tremendous competition from Facebook and Google.”

The government needs to update its view of the broader media business to allow newspapers to consolidate in an economically sustainable way, said Mutter, the newspaper analyst.

“If newspapers cannot find successful models to carry on into the future, then we’re going to lose the eyes and ears that have comforted the afflicted and afflicted the comfortable since the founding of the United States,” Mutter said.

In antitrust law, however, a merger of struggling newspapers is no different than any other media merger, and therefore deserves the same scrutiny, said Christopher Sagers, a professor at Cleveland-Marshall College of Law.

“The larger policy issue is how should antitrust deal with changing industries, how should they deal with technological changes,” said Sagers. “It’s better to let competitive forces decide who’s going to be in the market and do business than it is to let companies set up these mergers.”

Mark Abueg, a Justice Department spokesman, declined to comment on criticism about the department’s decision to seek to block the sale.

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